The rumors were true: eBay to buy Skype for $2.6B

The rumors were true: eBay to buy Skype for $2.6B

Summary: The rumors were apparently true.  At 7:15am this morning, eBay's PR counsel distributed a press release announcing that eBay is indeed buying Skype for $2.

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TOPICS: E-Commerce
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The rumors were apparently true.  At 7:15am this morning, eBay's PR counsel distributed a press release announcing that eBay is indeed buying Skype for $2.6 billion. To me, the move is reminiscent of Symantec buying Veritas. If you look real hard, you can probably make a connection between the two lines of business.  But in the end, Skype will probably be more important to eBay as a stand alone revenue generator than it will be as an integral communications tool to the company's existing auction/commerce platform.  More importantly, the move finally puts eBay into direct competition with Microsoft on at least one front now that Microsoft is acquiring potential Skype-killer Teleo.  In some ways, the move thrusts eBay into the same spotlight that's been dominated by the battle between Microsoft and Google (my question... where's Amazon?).   According to eBay's press release:

eBay Inc. (Nasdaq: EBAY; www.ebay.com) has agreed to acquire Luxembourg-based Skype Technologies SA, the global Internet communications company, for approximately $2.6 billion in up-front cash and eBay stock, plus potential performance-based consideration. The acquisition will strengthen eBay’s global marketplace and payments platform, while opening several new lines of business and creating significant new monetization opportunities for the company. The deal also represents a major opportunity for Skype to advance its leadership in Internet voice communications and offer people worldwide new ways to communicate in a global online era. Skype, eBay and PayPal will create an unparalleled ecommerce and communications engine for buyers and sellers around the world.

The release also quotes eBay president and CEO with an explanation of the business potential that lies in the potential integration of Skype's VoIP platform with  eBay's commerce platform

"Communications is at the heart of ecommerce and community," said Meg Whitman, President and Chief Executive Officer of eBay. "By combining the two leading ecommerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net."

One fact that will probably escape everyone is how quickly Skype's founders turned their company into a fortune.  For any two people -- in this case Niklas Zennström and Janus Friis -- to turn a start-up like Skype into a $2.6 billion acquisition within three years of founding the company is utterly mind boggling. [Update: if Skype meets its financial targets, the deal can be worth as much as  $4.1 billion to the founders].  Is there any other company in the hi-tech industry's history that has mustered that sort of a buyout on such short order? Nothing comes to the top of my mind.

Topic: E-Commerce

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8 comments
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  • Incredibly stupid

    For $2.6 billion, you could start your OWN VoIP provider, and sign up just as many paying customers - actually you could spend less and get more customers . . .

    I'm getting a flashback to the 90's - and AOL is buying Time Warner . . .
    Roger Ramjet
    • I had the same thought. Plus...

      I don't quite understand the value of a business built on VoIP. As broadband (WiMAX?) becomes more common why would anyone pay to use a commercial company? Yes it's needed today to reach POTS lines but in 5 years?
      No_Ax_to_Grind
      • The future is listings

        After POTS is dead, the value of VoIP COMPANIES will be to provide the listings of the numbers. Why we would STILL need numbers for VoIP - is a big question. Eventually free listing sites will open up, and VoIP companies will die.
        Roger Ramjet
  • eBay is insane

    I don't see anything wrong with eBay buying Skype...although it does seem rather divergent from their core competencies...

    But $2.6 BILLION!!!

    That's insane. eBay has a huge existing customer list that they could use to jump start a VOIP service if they had the technology.

    I'm sure the technology could be developed or licensed for a LOT less.

    eBay is just being stupid. They have too much cash and no good strategy for using it to sustain revenue growth, so they're throwing it away.
    Erik1234
  • on eBay building their own VoIP

    Sure, eBay could spend money(probably less) and build their own VoIP solution, but two reasons not to come to mind. First, building their own would take longer than buying Skype, and time is money. Second, and more importantly, if they built their own, Skype would still be out there as a major competetor; buying Skype removes a major competetor from the playing field.
    In a nutshell, eBay is paying a premium on what it would cost to build their own solution in exchange for getting it done faster and one having less competetor in the market.
    zijiang
    • Impact of local government action(s)

      I wonder what would happened if this really goes through in China to the whole 'Free' VoIP market. http://www.msnbc.msn.com/id/9311134/. Don't think that it could only happened in an Asia country. There are those that are thinking of the same thing in the names of National Security - you know the whole 'wire tapping' issues.

      Wonder are those folks in eBay thinking of changing their offer.
      JJ_z
  • eBay users pay for bumper crop of dumb decisions

    During the SAME year (2005) eBay jacked up the listing fees and comissions charged to its sellers it also has BILLION$ to toss around aquiring technology that is unrelated to its core competency. How foolish.

    I have used eBay for over six years now and during that time things have deteriorated significantly. Not only have fees increased, but eBay's "search" capability (lets buyers locate what they want quickly) has been badly corrupted. For example, if you search on the plural version of a word, the eBay search software kicks back all the singular versions it can find too (unless the original search is carefully augmented with many extra keystrokes to stop this insanity). What's more, buyers doing searches are constantly bombarded with search results for "simmilar" words if eBay does not like the spelling of what it was originally asked to find. This was never the case in years past.

    Apparently the eBay management thinks these software flourioshes and gyrations are something akin to arificial intelligence. They are not. Now it looks like eBay's investment strategy has become similarly disfunctional. HEY MEG! Why not just reduce the listing fees?

    Apparently every good high-tech idea must be force-fed and massaged until its primary usefulness is completely neutralized by the ego of those who (mis)manage it.

    What a waste!
    Such a shame!
    dmennie
  • Skype the Hype - Where's the Meat?

    Or shall I say " Meet"?

    Sure, that's a great win for the Skype founders, and frankly I dig the fact that these guys will be enhancing the technology pool with their winnings. We need more home-runs to keep the technology pool funded and cooking with brilliant ideas.

    But c'mon, eBay... What is Meg smoking these days? I've done acquisition valuations for years, and I'm having a bit of trouble getting my mind around that many zeros...

    Maybe I'm not seeing everything... but even long-term monetization of that deal is, well, sort of difficult to figure.

    But it makes me wonder who's missed the acquisition opportunities of http://www.prweb.com, and http://www.limewire.com. I mean, both those firms are actually profitable and have both killer platforms and fast-growing user bases.

    Am I missing something here?

    Anyhow, my hat is off to the founders, and I hope to see some great things come from the resulting ties to the eBay membership.

    Best,
    Mark Alan Effinger
    http://www.richcontent.com
    eAgent